The common stock of Escapist Films sells for $25 a share and offers the followin
ID: 362113 • Letter: T
Question
The common stock of Escapist Films sells for $25 a share and offers the following payoffs next year Stock Dividend Price Boom Normal economy Recession s 18 26 34 The common stock of Leaning Tower of Pita Inc. is selling for $80 and offers these payoffs next year: Stock Dividend Price $824e Boom Normal economy Recession 98 a-1. Calculate the rate of return of Escaplst Fllms for each economlc state. (Negative amounts should be Indicated by a minus sign. Enter your answers as a whole percent.) Rate of Return Boom Normal economy a-2. Calculate the expected return and standard devlation of Escapist if all three economic scenarlos are equally llkely to occur. (Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return Standard deviation b-1. Calculate the rate of return of a portfollo half Invested In Escaplst and half in Leaning Tower of Pita for each economic state (Negative amounts should be Indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Rate of Return Boom Normal economy b-2. Calculate the expected rate of return and standard devlation of a portfollo half Invested In Escapist and half In Leaning Tower of Pita. All three economic scens are equally likely to occur. (Do not round Intermedlate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return Standard deviationExplanation / Answer
a.1. the return of Escapist film in boom=
now it is selling at $25, in boom times it sells for $18. the return is = selling price- buy price/buy price
Boom= 18-25/25= -7/25=(28% loss)
normal economy= (1+26)-25/25= 2/25= 8% profit
recession= (3+34)/25= 37/25= 12/25= 48% profit
a2. the expected return if three situations happen= 48+8-28= 28/3= 9.33%
b. the return on Pita is, it is currently selling at $80
Boom= 248-80/80= 210%
normol economy= 98-80/80= 18/80= 22.5%
recession= return is 0 and 100% is loss.
the expected return on three stages happens = (210+22.5-100)/3= 132.5/3= 44.16%
b1. if equal percent invest in both the stocks, the return of portfolio is=
0.5*9.33+0.5*44.16=4.665 +22.08= 26.745%